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Shop Local and Multiply: The Local Multiplier Effect

How Shopping Local Can Multiply In Your Area Economy


Shopping small, locally owned businesses like Snowville Creamery has a lot of benefits, from familiar faces to being more environmentally friendly. But did you know that for every $100 spent at a small business, about $53 recirculates in your community? Compare this to only $13.60 with chain businesses. This is thanks to what's called the Local Multiplier Effect.


Let's dive into what it is and what influences it, or if you'd like to skip ahead, click a link below.

What is the Local Multiplier Effect?

The Three Types of Impacts

Putting it Together

Further Reading & Sources

 

What is the Local Multiplier Effect?

The Local Multiplier Effect, sometimes called the Local Premium, looks at how much money circulates in a local economy before it leaks out of the area. Businesses break down what they earn into their expenses. If those costs are local as well, the cycle goes on and boosts wealth, income, and jobs.


For example, you might buy from a local, small business. That company then uses the money to cover expenses such as wages, supplies, and may even contribute it to community charities. They may buy inventory locally, pay nearby service providers, and the employees themselves could spend their pay at other shops in your hometown


With a big chain company, a good chunk of that wealth ships out of the area economy to corporate offices far away. They're also prone to source supplies and inventory outside your community. Chains can add to your area's economy, but their effect doesn't multiply as much.


The Three Types of Impacts

Civic Economics and the Institute for Local Self-Reliance have studied the Local Multiplier. When they did their studies, there were three kinds of impacts considered.


Direct Impact